Nic Cicutti: Apfa is misleading on regulatory costs

For those of us at the sharp end of our business, journalism can be a ferociously competitive trade. Earning a decent wedge is great, of course, but what really matters to most of us who scribble for a living is a byline above the articles we write.

For some colleagues, however, what also matters is not just the quest for an author’s name to accompany the story, but finding the easiest way to obtain it. Maximum gain for relatively little pain, as it were.

The easiest way is through the clever re-nosing of press releases by big financial institutions, regulators, sometimes even trade bodies, that are guaranteed systematic coverage by all the relevant media.

Often, accompanying these major releases are others from smaller players, rent-a-quotes eager to garner a few column inches for themselves by commenting on the bigger story. If you play your cards right, you can whip up a 600-word piece in a few minutes simply by splicing together four or five press releases.

The best stories are so-called “franchises”: recurring articles based on a press release, one likely to require rewriting often, perhaps with a slightly different intro but where the central kernel of information is always the same.

Back in the day, I knew a colleague who virtually guaranteed himself several big bylines a week from stories that, to be perfectly truthful, virtually wrote themselves.

If I am honest, there is often also a mutual back-scratching interaction between us byline grabbers and the organisations putting out these press releases. They do us the favour of seeing our name in print and we give them the publicity they need, no matter how nonsensical the story.

Which is where, when push comes to shove, I firmly place the self-interested opinion-piece come-article by Afpa senior policy adviser Caroline Escott in Money Marketing just before the New Year, claiming small- to mid-sized firms are spending approximately 12 per cent of their turnover on regulation. This equates to 3 per cent on fees and levies and the rest on so-called “indirect regulatory costs”.

According to Escott, based on the number of advisers in the UK and an average number of clients, this means each client pays about £160 a year just to cover the costs of regulation.

These figures are, of course, nothing new. Last year Apfa carried out a survey that suggested exactly the same thing, always a disappointment for scribes who may not mind the odd similarity between stories year-on-year but tend to baulk at recycling identical copy every 12 months.

Moreover, while this may be Apfa’s second foray into an overcrowded “cost of regulation” PR market, the story has even longer legs. In March 2014 Aviva published the result of its so-called Adviser Barometer, which found that two-thirds of advisers estimated their costs to be over 10 per cent of turnover.

One third said it was between 10 and 14 per cent, about one in six IFAs declared it to be between 15 per cent and 19 per cent of turnover; one in 10 said it was between 20 per cent and 24 per cent; and a further 6 per cent put the figure at a quarter of turnover or more.

As with Apfa, the Aviva survey was suitably nebulous on the subject of what constitutes ‘regulatory costs’. At the time I questioned the figures, suggesting the only way this variation made sense was if “everything was lumped into “regulatory costs”, including not just the FCA fees themselves but PI, training and CPD, compliance, FSCS and so on. If so, that can’t be the right way of looking at things”.

Escott’s own throwaway definition of “indirect regulatory costs” includes “compliance support (internal or external) or management and staff time spent on regulatory returns”.

She does admit these estimates “are just that” but they “can be a helpful tool” when taken alongside Apfa’s campaign for a long-stop against misselling and poor advice, plus her trade body’s call for consumers instead of advisers to pay the Financial Services Compensation Scheme levy.

In other words, what Escott uses is unquantified and unscientific evidence about regulatory costs, into which she lumps everything including the kitchen sink to keep alive two profoundly anti-consumerist proposals.

The irony is in the same breath she also stresses Afpa works “closely with consumer groups to try to broaden access to professional financial help. We also believe it is incumbent upon advisers to be transparent and raise client awareness of the money they themselves pay to cover the costs of the complex and ever-changing regulatory regime”.

This transparency, in Apfa’s view, means giving out undefined “regulatory cost” statistics as if they were Gospel truth – which they emphatically are not.

The irony, as I wrote two years ago, is “the majority of compliant advisers are indeed paying a heavy burden to be under FCA scrutiny”. But the blame for this lies not on heavy-handed and expensive regulators but the fact that advisers are paying for a legacy of poor and sometimes dishonest advice by a minority of their peers.

Apfa would do well to remember you can dish out misleading and repetitive statistics once, sometimes even twice. But three times really is the limit – even for byline-grabbing journalists.

Your an oxygen thief Cicutti and one useless “Hack”, try and write something meaningful about the morally bankrupt regulator pulling out of the Bank Review. Alternatively, try and earn an honest living somewhere else.

Whichever way you want to slice it, clients don’t really give a toss. The fee (or bill) is the charge and that’s what they are interested in. If you have a meal how interested would you be if the bill details the rising cost of broccoli? What you look at is the bottom line. If that’s OK then you may go back, if not you will probably moan and never return.

Why should financial services be any different?

If the bigger firms are paying more that’s their hard luck – they probably add VAT too. Yet again it all points to ‘Small is beautiful’.

Oh dear Nic, dont’ tell a mechanic how to change a wheel nut for goodness sake; I know it’s just a wind-up but it really is rather petty and red-top, don’t you think?

The truth is that nobody really gives a damn what advisers have to pay and to whom (other than advisers of course, hence your wind-up) and it is decreed that it will be what it is by unshakeable forces; furthermore, clients will pay an adviser what they feel is reasonable and no more, so why tell us about something which market forces determine in any event?

NO way. Admittedly I stopped practicing in Feb-15, but my regulatory costs – including professional body memberships (for SPS) was never near 12%. If people are daft enough to invite parasites (networks, compliance consultants, DFMs etc) then no wonder they are paying through the nose.

You phone tapping/privacy invading idiot Nic! What a ridiculous article. When you have any idea what it costs to a run a financial services business you come back and tell us all what it costs, until then stop (as you accuse others of doing) trotting out the same old rubbish.

Sorry are you not a phone tapping/privacy invading journalist? Oh that must be the minority of your peers and yet all journalists are looked at in the same way!

You’ve hooked me this week Nic fair play, but here’s a simple summary of direct regulatory costs which I am sure will resonate with many other smaller firms: FCA,FSCS & FOS fees 6% of t/o, Simply Biz compliance support 2.5% of t/o + audits, file checks 1.5% of t/o. I am at 10% of t/o before we even look at areas such as CPD study and attendance (fair play, all useful but no longer paid for by providers under FCA rules, so a cost to the client/firm), time spent on form filling to directly satisfy regulatory/compliance oversight. I’ve sold myself well short on the 12% I stated before, sorry for that, but I am sure that you get the drift!!

You can double that % if we talk solely about new fee income and not past business servicing revenue. Whilst reviews take as much and sometimes more time than acquiring new business, the point I make with this is that (as a previous poster has observed) without historical revenue streams, many advisers would not even contemplate remaining within this industry, largely as a result of the significant compulsion and overhead.. Good or bad, you decide!

My network charges 12% and I believe provides reasonable value. Plus FCA, FSCS, FOS, MAS and Pensionwise that’s easily another 4%. Add in all the additional time that I spend on client files ensuring that they are ‘compliant’ and time spent going through pointless regulatory minutiae with clients and you’re easily at 20%. Before we consider the useless CPD that is done to ensure that we can still call ourselves ‘independent’ (it’s in product areas on which we do not normally advise). Obviously relevant CPD would be done anyway and is not a regulatory cost.

What about the additional costs invoked by failures on the part of the FSA/FCA to do its job properly, just one prime example of which is the skyrocketing FSCS levies resulting from the regulator having failed to stop firms selling products in respect of which they had no PII cover?

A client of mine, who lives locally and who plans to vest his Prudential WP PP in a month or two, dropped by to see me the other week and asked, as part of what was nothing much more than an informal chat, if everything was going according to plan. I told him that it was/is. That, according to the FCA (so my network tells me), is apparently “an advice event” and must be followed up with a written suitability report. Such a requirement is, frankly, sheer bloody madness, yet another wet dream created by some little tiresome little urk within the bowels of 25 The Colonnade. Just one more entirely unnecessary imposition that adds yet more to my regulatory costs. What kind of sad, anal little jobsworths are those who think these things up?

Ironic that you start the article talking about click bait and trying to suggest its bad, then proceed into nothing but ill informed click bait yourself.

Your only point in this article Nic is about somehow bashing an organisation thats trying to help balance the market and complaining about an “estimate” for something that can only be estimated. From 18 years experience sitting in nearly all roles within the industry and knowing an awful lot more about it than you, I would suggest that 12% figure is probably an under estimate, but why let truth get in the way of your rhetoric and click bait.

PS, I used to think Dan Hodges at the Telegraph was one of the worst “journalists” i had seen. You seem to be intent on taking the title.

“Back in the day, I knew a colleague who virtually guaranteed himself several big bylines a week from stories that, to be perfectly truthful, virtually wrote themselves.”

Nothing like a bit of honest, creditable journalism then!

Is this not really about all of the post RDR advisers having to pay for all the pre RDR rubbish and still getting the blame for all of the wrongdoings of those no longer in business and who fundamentally should be in jail.